Friday, August 28, 2009

What Can Be Done About The State of the Economy?

As this article is written, new reports show that the economy has slipped deeper into a "Depression". Nationally, one in every 10 Mortgages is at least one payment behind, and another 4% have already entered the foreclosure process.

Two States lead the downward trend, Florida and California with Nevada and Arizona not far behind.

The picture in Florida leaves a bleak assessment of the landscape. Between April and June, 12 percent of all Florida mortgages were in the foreclosure process and one in four, (25 %) were late on payments and under threat of being included.

In California, a similar picture emerges, 10.8 percent of all mortgages were more than 90 days late or in foreclosure. California the largest State, population wise, accounts for 13.3 percent of U.S. mortgages yet experienced almost 20 percent of foreclosure starts between April and June.

In Nevada, the picture is even worse as foreclosures continue to claim Nevada as one of the top three regions where foreclosures are reshaping the landscape. Commercial shopping centers remain as much as 80% empty, storefronts bearing signs "for Lease" but with no takers, and office buildings stand completely vacant. On top of this more than 4.5 percent of real property, homes once occupied by middle class residents now stand empty.

In the second quarter, April to June, forty-one states demonstrated an increase in their foreclosure rate, but this is now for "prime" fixed-rate mortgages. Prime fixed-rate loans account now for one in three foreclosure starts, up from a year ago when they were one in five.

Prime fixed-rate loans account for 65 percent of all outstanding U.S. mortgages, but they were more than 32 percent of foreclosure starts during the second quarter. They also constitute 27 percent of all U.S. loans now in foreclosure, and are growing monthly. None of the Government programs have worked to alleviate the stress.

The Making Home Affordable effort, which was hoped to be a model the Banks would pursue, has demonstrated to be a complete failure. The Banks are refusing to co-operate and to help borrowers modify their loans, Wells Fargo being one of the worst offenders, while Bank of America seems to be more compassionate toward their borrower's plight. Part of the problem has been the Derivatives (Credit Default Swaps) which guaranteed payment to the investors when these loans failed. As the Bush and Obama Administrations salvaged AIG, they also, at the same time, placed the final nail in the coffin of many borrowers, because the Banks had NO incentive except to foreclose and be paid out by the insurance contract.

This is not the first time in the history of America that we have gone through a major "depression", but it is the first time the Government has not made any effort to help its people. Instead, the administrations have looked to support the Banks "against" the interest of the public.

What can be done? A lot!

First the government and or any state of the Union can and should declare a foreclosure moratorium. This was done during the depression of 1929 and 1932. It would further give the Banks, who were the cause of the problem, an incentive to work with the borrowers and to make loans more affordable.

The goal must be to keep borrowers in their homes and to begin to stabilize the Real Estate Market. With that the job market would follow!

What the Banks lack is incentive! The Banks already obtained their bailout and now its business as usual.

The effects on the economy are mind shattering, bringing the sanity of Bankers into question. Logic and simple economics dictate that when Banks foreclose in volume, as they are doing then offer the property at distressed price levels they will trash the real Estate Market. They did both!

Every region of the country has experienced a market crash both in the value of their homes and the numbers of those homes for sale at distressed prices. It's based on the simple economic principal called supply and demand! The Banks are controlling the supply based on the level of foreclosures, and with a market continually in decline there is very little demand, and even less money being made available.

The work force now at its lowest level in recent history, is suffering as more and more businesses close their doors, or outsource to China or India, while top executives continue to rake in multi million dollar paychecks, and bonuses.

We are slipping deeper into a quagmire from which if we don't begin to act responsibly may continue for decades, and if it does, it will affect each of us, our children and theirs...

Some 150 to 200 banks are now primed to fail within the next several months, No American Bank is healthy enough to take them over, and a further bail out without consideration of the Borrowers in mind would create a further wedge, and further increase the numbers slipping into default and foreclosure.

If the taxpayers are to be on the hook to salvage a system that poisoned itself, their MUST be some consideration given to those taxpayers, a foreclosure moratorium is suggested, and rightfully due them.